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General Banking, Investment and Foreign Exchange Operationsof
Islami Bank Bangladesh Limited.
Submitted by
WWW.ASSIGNMENTPOINT.COM
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CHAPTER-01INTRODUCTION
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1.1 Introduction of the Study:
Bangladesh is one of the largest Muslim countries in the world. The people of this
country are deeply committed to Islamic way of life as enshrined in the Holy Qur'an and
the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their
economic lives in accordance with the precepts of Islam. The establishment of Islami
Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of
its people, which started functioning with effect from March 30, 1983. This Bank is the
first of its kind in Southeast Asia. It is committed to conduct all banking and investment
activities on the basis of interest-free profit-loss sharing system. In doing so, it has
unveiled a new horizon and ushered in a new silver lining of hope towards materializing a
long cherished dream of the people of Bangladesh for doing their banking transactions in
line with what is prescribed by Islam. With the active co-operation and participation of
Islamic Development Bank (IDB) and some other Islamic banks, financial institutions,
government bodies and eminent personalities of the Middle East and the Gulf countries,
Islami Bank Bangladesh Limited has by now earned the unique position of a leading
private commercial bank in Bangladesh.
1.2 Background of the Study:
The first objective of writing the report is fulfilling the partial requirements of the BBA
program. In this report, we have attempted to give an overview of Islami Bank
Bangladesh Limited in general. Following are the main objectives
To familiar the history and operations of Islami Banking in Bangladesh.
To show the investment mechanism and product offerings in different modes
of IBBL.
To show overall investment proposal, appraisal procedures, documentation
system of IBBL and Conventional Banks.
To show the differences with conventional banking regarding investments
aspects
To identify strength and weakness of investments of IBBL.
To identify the problems related to investments faced by IBBL.
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1.3 Rationale of the Study:
In our economy, there are mainly three types of schedule commercial banks are in
operation. They are Nationalized Commercial Banks, Local Private Commercial Banks
and Foreign Private Commercial Banks. Islami Bank has discovered a new horizon in the
field of banking area, which offers different General Banking, Investments and Foreign
Exchange banking system. So I have decided to study on the topic “Different Investment
Modes of IBBL”. Because the Internship program of the university is an integral part of
the BBA program. So it is obligatory to undertake such task by the students whom
desirous to complete and successfully end-up their BBA degree. This also provides an
opportunity to the students to minimize the gap between theoretical and practical
knowledge. During the internship program the teachers of the department are attached to
actively and constantly guide the students. Students are required to work on a specific
topic based on their theoretical and practical knowledge acquired during the period of the
internship program and then submit it to the teacher. That is why we have prepared this
report.
1.4 Objectives of the Study:
The objectives of this report completely concerned with the total idea of Islami Bank
Bangladesh Limited. The report acts as a guide here who can show the various
ingredients of the foreign direct investment policy & their left & right hands elements.
The report’s ultimate goal was too big but in a sense of objectivity it’s very much
qualitative oriented. The report narrates how to inter change the various ideas & offerings
in foreign investment policy to the customers of the Islami Bank Bangladesh Limited.
1.5 Limitations of the study:
There are some limitations in our study. We faced some problems during the study, which
we are mentioning them as below-
i) Lack of time:
The time period of this study is very short. I had only 8 weeks in my hand to complete
this report, which was not enough. So I could not go in depth of the study. Most of the
times, the officials were busy and were not able to give me much time.
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ii) Insufficient data:
Some desired information could not be collected due to confidentiality of business.
iii) Lack of monitory support:
Few officers sometime felt disturbed, as they were busy in their job. Sometime they
didn’t want to supervise us out of their official work.
iv ) Other limitations:
As we are newcomers, there is a lack of previous experience in this concern. And many
practical matters have been written from our own observation that may vary from person
to person.
1.6: Scope of the Report:
The scope of this paper is limited to the organizational structure, background, and
objectives, functions, and investment performance of IBBL as a whole. The scope is also
limited to different investment schemes, modes, mechanism, investment proposal
appraisal procedures, monitoring and documentation of IBBL, general banking aspects
and foreign exchange operations.
1.7: Sources and Methodology of the Study:
I have collected data from two sources. These two sources are as following:
I. Primary sources
1. Direct working and observation
2. Expert opinion &
3. Questioning the concerned persons
II. Secondary sources
Annual report of Islamic Bank Bangladesh Limited, 2008
Desk report of the related department i.e. IDFD
Other manual information and Conference Booklet of
2010
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CHAPTER-2OVERVIEW OF
Islami Bank Bangladesh Limited
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2.0 Background of Islami Bank:
Islamic bank is a financial Institution that operates with the objective to implement and
materialize the economic and financial principles of Islam in the banking area. The
organization of Islamic conference (OIC) defines an Islamic bank as “a financial
institution whose statutes, rules and procedures expressly state its commitment to the
principals of Islamic Shariah and to the banning of the receipt and payment of interest on
any of its operation.” According Islamic banking Act 1983 of Malaysia Islamic bank is a
“company, which carries on Islamic banking business. Islamic banking business means
banking business whose aims and operations do not involve any element which is not
approved by the religion of Islam.” It appears from the above definitions that Islamic
banking is system of financial intermediation that avoids receipt and payment of interest
in its transactions and conducts its operations in a way that it helps achieve the objectives
of an Islamic economy. Alternatively, this is a banking system whose operation is based
on Islamic principles of transactions of which profit and loss sharing (PLS) is a major
feature, ensuring justice and equity in the economy. That is why Islamic banks are often
known as PLS-banks.
2.1 Structure of the Islami Bank Bangladesh Limited:
The Islami Bank’s structure is quite different in a sense because their main focus is
concerned with several Islamic savings policies. They have accumulated different
positions in different level as far the board of directors was concerned. It is quite natural
that they will form their own structure according to the strategies & they are focused with
customer’s satisfaction with giving mutual benefits & financial solutions to their
customers. According to the position of acting (activities) they have 14 directors or top
level officials are working efficiently & effectively within the organization from the
establishment of the Islami Bank Limited. Structures were somehow different at the
beginning time of establishment but after reaching to a standard they have completely
focused on the appropriate person recruitments.
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2.2 Islami Bank Vision:
Islamic bank vision to always strive to achieve superior financial performance is
considered a leading Islamic bank by reputation and performance. They are:
To establish and maintain the modern banking technology,
To ensure the soundness and development of the financial system based on
Islamic principles
To become the strong and efficient organization with highly motivated
professionals, working for the benefit of people, based upon
accountability, transparency and integrity in order to ensure the stability of
finical systems.
Try to encourage savings in the form of direct investment.
Try to encourage investment particularly in project, which are more likely
to lead to higher employment.
2.3 Islami Bank Mission:
To establish Islamic banking through the introduction of welfare oriented
banking and also ensure equity and justice in the field of all economic
activities,
Achieve balanced growth and equitable development through diversified
investment operations particularly in the priority sectors and less
development areas of the country.
Its main concern is to encourage social-economic up liftman and financial
services to the low -income community particularly in the rural areas.
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2.4 Islami Bank Management System:
Evaluating the common scenarios of IBBL bank activities management system:
2nd Officer Posting TT Account statement
IT Section others activities
Waiting
Lounge
TT/Pay order Issuing Others
Cheque
Internal Check
Cash Payment Cash Received Processing
Stairs
Vault
AVP Remittance New Foreign Exchange
Account Department
Open
Locker TDR Cash Receive Computer Postings Investments activities
Department
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Floor-1
Floor-2
Action plan portrays that how an Islami Bank Branch managing their customers & giving
particular services to help the customers in the certain moments. All above the planning
of office management is not same in the all around the branches of Islami Bank within
Bangladesh.
2.5 Functions of Islami Bank:
Functions of Islami Bank is typically not as the other private bank organizations in
Bangladesh. According to the traditional development they have some common policies
& for their perspective of banking they have their own functions which they are enrolling
from the last couple of years. Functions are justified & logically integrated according to
their activities, the bank proved its succession through accomplishing different level of
functional activities. They have designed their whole management functions in to several
parts to accumulate the whole professional’s performances. They have all the functions
but not thoroughly the traditional view. Terms & conditions V/s their all offerings they
proved that they have the ability to do the right things first & exactly the right time also.
2.6 Activities of Islamic Bank:
The primary objective of establishing Islamic banks all over the world is to promote,
foster and develop the application of Islamic principles in the business sector. More
specifically, the objectives of Islamic banking when viewed in the context of its role in
the economy are listed as following:
a. To offer contemporary financial services in conformity with Islamic Shariah:
b. To contribute towards economic development and prosperity within the
Principles of Islamic justice;
c. Optimum allocation of scarce financial resources; and
d. Help to ensure equitable distribution of income.
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These objectives are discussed below:
Offer Financial Services:
Interest-based banking, which is considered a practice of Riba in financial transactions,
is unanimously identified as anti-Islamic. That means all transactions made under
conventional banking are unlawful according to Islamic Shariah. Thus, the emergence of
Islamic banking is clearly intended to provide for Shariah approved financial
transactions.
Islamic Banking for Development:
Islamic banking is claimed to be more development- oriented than its conventional
counterpart. The concept of profit sharing is a built-in development promoter since it
establishes a direct relationship between the bank’s return on investment and the
successful operation of the business by the entrepreneurs.
Optimum Allocation of Resources:
Another important objective of Islamic banking is the optimum allocation of scarce
resources. The foundation of the Islamic banking system is that it promotes the
investment of financial resources into those projects that are considered to be the most
profitable and beneficial to the economy.
Islamic Banking for Equitable Distribution of Resources:
Perhaps the most important objective of Islamic banking is to ensure equitable
distribution of income and resources among the participating parties: the bank, the
depositors and the entrepreneurs.
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2.7 Corporate Information:
Date of Incorporation: 13th March 1983
Inauguration of 1st Branch (Local office, Dhaka): 30th March 1983
Formal Inauguration: 12th August 1983
Share of Capital:
Local Shareholders: 42.64%
Foreign Shareholders: 57.36%
Authorized Capital Tk.: 10,000.00 million
Paid-up Capital Tk.: 6,178.00 million
Deposits Tk.: 239,341.00 million
Investments (including Investment in Shares) Tk.: 240,951.00 million
Foreign Exchange Business Tk.: 419,957.00 million
Equity: 21,385.00 million (as on
30.09.09)
Number of Branches: 211
Zones: 11
Number of SME Service Centres: 20
Number of Shareholders: 43,493
Manpower: 9,467
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CHAPTER-3GENERAL BANKING AND
RELATED TOPICS
OF
ISLAMI BANK BANGLADESH LIMITED
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Islami banking has been defined in different ways. The definition of Islamic bank, as
approved by the Secretariat of the OIC, is stated in the following manner:
“An Islami bank is a financial institution whose stratus, rules and procedures expressly
state its commitment to the principle of Islamic Shariah And to the banning of the receipt
and payment of interest on any of its operations”(Ali & Sarker 1955,pp.20-25).
Shawki Islami Shehta viewing the concept from the prospective of an Islamic Economy
and the prospective role to be played by an Islamic bank therein opines:
It appears from the definition that Islamic banking is systems of financial intermediation
that avoids receipt and payment of interest in its transaction and conducts its operation in
a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a
banking system whose operation is based on Islamic principles of transaction of which
profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the
economy. That is why Islamic banks are often known as PLS bank.
3.1 Aims and Objectives of IBBL:
To conduct interest-free banking
To establish participatory banking instead of banking on debtor-creditor
relationship
To invest on profit and risk sharing basis
To accept deposits on Mudaraba & Al-Wadeah basis
To extend co-operation to the poor, the helpless and the low-income group
for their economic up liftmen
To play a vital role in human development and employment generation
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3.2 Business Philosophy of IBBL:
The philosophy of IBBL is to the principles of Islamic Shariah. The organization of
Islamic conference (OIC) defines an Islamic bank as "a financial institution whose status,
rules and procedures expressly state its commitment to the principles of Islamic Shariah
and to the banking of the receipt and payment of interest on any of its operations. The
sponsor, perception is that IBBL should be quite different from other privately owned and
managed commercial bank operating in Bangladesh, IBBL to grow as a leader in the
industry rather than a follower. The leadership will be in the area of service, constant
effort being made to add new dimensions so that clients can get "Additional" in the matter
of services commensurate with the needs and requirements of the country' growing
society and developing economy.
3.3 Social Welfare Activities of IBBL:
One of the distinguishing features of Islami Bank is that its overall activities are directed
towards the welfare of the society. The Bank, since its inception, has dedicated itself for
the upliftment and emancipation of the helpless and downtrodden people of the society.
With this end in view, the Bank has created a separate fund, which was earlier known as
Sadaqua Tahbil. In 1991, the Sadaqua Tahbil was reorganized and enlarged-under the
new name of 'Islami Bank Foundation' with a fund of Taka 38.00 million in order to
conduct social-welfare activities on a wider scale. As one of the leading non-government
voluntary organizations of the country, the Foundation has been working with unique and
special programmers for the welfare of distressed humanity and to make poor, down-
trodden, landless and asset less people self-reliant.
The aims and objectives of the Foundation are to serve distressed humanity, promote
people oriented mass education, extend health and Medicare facilities to the poverty-
stricken people in urban and rural areas, create facilities for productive self-employment
and develop human resources for improving economic condition and quality of life, assist
healthy growth of art, culture and literature, science and technology, sports, research and
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propagation of Islamic teachings. The Foundation has taken up a number of schemes
covering the whole of Bangladesh.
3.4: Emergence of Islamic Banking:
For an expanding economy, a developed and efficient banking system is indispensable.
Among others, it helps transfer of financial resources from surplus units to deficit units
and, hence, helps accelerate the pace of development by securing uninterrupted supply of
financial resources to people engaged in numerous economic activities. The tremendous
development that the world economy has experienced in the last few decades was
contributed by several factors among which, growing institutional supply of loan able
funds must have played the pivotal role. The role of banking is comparable to what an
artery system does in the human body. Both commercial banks and other development
financial institutions provide short-, medium-, and long-term credits to businesspersons
and entrepreneurs who usually take the lead in ventures of economic development.
Institutional supply of credit has been made possible by a system of financial inter-
mediation organized in a way where conventional banks collect small savings from the
public by offering them a fixed rate of interest and advancing the loan able funds out of
the deposited money to enterprising clients charging relatively higher rates of interest.
The margin between these two rates is the bank's income. In addition, banks also provide
many other services to the public for which it receives service charges.
In response, though not exactly to that exigency but for quite a few other reasons, the
second half of the twentieth century witnessed a distinctly separate line of thinking on
banking. This was institutionalized at the end of third quarter and subsequently emerged
as a new system of banking called Islamic Banking {also called Profit-Loss-Sharing
Banking (PLS)}. The world has now been experiencing operation of as many as 250
Islamic banks and financial institutions in more than 50 countries, Muslim and non-
Muslim.
There are religious as well as economic reasons, which have contributed to the
emergence of PLS-banking as an alternative to its conventional counterpart. It is the
prohibition of 'Riba' in the Quran that, according to the proponents of the PLS-system,
was the source of inspiration for establishing banks in line with Islamic Shariah
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(Muslehuddin 1987, pp.24-27). The basic intention behind establishing Islamic banks
was the desire of Muslims to reorganize their financial activities in a way that do not
contradict the principles of Shariah and enable them to conduct their financial
transactions without indulging into Riba (Ahmad 1992). These writers consider rate of
interest in the conventional banking mechanism synonymous to Riba, the term as used
in the Quran [2:275; 30:39]. One of the reasons for this is that the outcome of the
productive effort is uncertain, and so interest necessarily involves an element of
Gharar, that is, uncertainty (Chapra 1985, p.64). On this religious ground, proponents
of the PLS-system urge the Islamic community to avoid all transactions with institutions
that are interest-based.
The economic reason derived from a verse of the Quran providing inspiration to devise
an interest-free financial system has been substantiated in the way that interest, instead
of increasing wealth, reduces it [30:34]. The primary reason of why the Quran has taken
such a hard approach towards interest is that Islam stands for establishing a just
economic system free from all kinds of exploitation (Chapra 1985). Further, Muslim
economists consider depression and stagflation very often found in the capitalist world
as an outcome of the financial system based on interest (Rahman 1976).
Thus, Islamic banking emerged as a response to both religious and economic
exigencies. While religious exigency calls for avoiding any transaction based on
interest, economic exigencies, on the other hand, provide a new outlook to the role of
banking in promoting investment / productive activities, influencing distribution of
income and adding stability to the economy. Islamic banking is thus perceived as an
improved system in all dimensions.
Conventional banking is essentially based on the debtor-creditor relationship between the
depositors and the bank on the one hand, and between the borrowers and the bank on the
other. Interest is considered to be the price of credit, reflecting the opportunity cost of
money.
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3.5: RIBA and Its Basic Features:The word used by the Quran concerning ‘interest’ is Riba. The literal meanings of Riba
are money increase, increase of anything or increment of anything from its original
amount (Maududi 1979, p.84). However, all increases are not considered as Riba in
Islam. Money may increase in business activities as well. This increase is not at all
considered as Riba. The increase, instead of being prohibited (Haram), is approved
(Halal) in Islam. Islam prohibits only those increases that are charged on the loan with a
prefixed rate.
Muslim scholars equate interest with Riba. In the Shariah, Riba technically refers to the
premium that must be paid by the borrower to the lender along with the principal
amount as a condition for the loan or for an extension in its maturity (Chapra 1985,
p.64). In other words, Riba is the predetermined return on the use of money. In the past
there has been dispute about whether Riba refers to interest or usury, but there is now
consensus among Muslim scholars that the term covers all forms of interest and not only
“excessive” interest (Khan 1985, p.52).
Imam al Rajhi describes, “During the era of Jahiliah people invested their money and
charged Riba on a monthly basis, though the invested amount remained unchanged.
Money so invested was called back at the time of repayment. In case of the borrower
being unable to pay back, the lender extended the period of repayment enhancing the
amount to be paid on and above the principal amount.” Abu Bakr al Jasas writes,
“During the period of Ignorance the lender and borrower came to an agreement that the
borrower would pay back within a specified period the principal amount along with the
agreed upon excess.” Ibne Hajar Askalani says, “Excess goods or money charged on and
above principal amount is Riba.”
Thus, any prefixed extra amount charged on a specific amount of money or goods lent
out is called Riba. The most important characteristic of Riba is that it is the positive
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and definite result of money when changed. In other words, when money begets money,
without being exchanged for goods or services, it is called Riba.
The basic characteristics of Riba as are:
Origin of riba is loan(Quard or Dayn)
Riba is excess over and above the principal loan
Riba is charged or paid only as a condition of loan or time and no other
recompense, price or exchange value is paid for the excess or Riba
Riba is related with time and become double and redouble and multiple with
passage time
Riba is not related with the result of business.
3.6: RIBA and Profit:
Most of the persons who try to equate Riba with profit. In effect, they are fundamentally
different from each other. These misunderstanding will be removed if we look at the
differences of the riba and Profit. These differences are as follows:
Riba Profit
1. When money is “charged”, its imposed
positive and define result is Riba
1. When money is used in trading (for e.g.)
it’s uncertain result is profit.
2. By definition, Riba is the premium paid
by the borrower to the lender along with
principal amount as a condition for the loan.
2. By definition, profit is the difference
between the value of production and the
cost of production.
3. Riba is prefixed, and hence there is no
uncertainty on the part of either the givers
or the takers of loans.
3. Profit is post-determined, and hence its
amount is not known until the activity is
done.
4. Riba cannot be negative, it can at best be
very low or zero.
4. Profit can be positive, zero or even
negative.
5. From Islamic Shariah point of view, it is
Haram.
5. From Islamic Shariah point of view, it is
Halal.
6.Riba is not related with the result of 6.Profit is related with Business
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business
3.7: Role and Contribution of IBBL to Bangladesh Economy:
Pioneer in Islamic Banking running its entire operation based on Islamic
Shariah.
Shariah Council comprising of leading Ulama, renowned economists, lawyers
and bankers of the country for constant supervision and guidance of the
Banking operation.
Never participate in the interest based money market operations.
Never borrowed from any source either inside or outside the country.
A transparent and corruption free operation for the last 23 years in a row.
Regular and timely holding of AGM declaring good dividend since 1989
without break till 2002, except in the year 1992.
Largest contributor of Tax to the Government exchequer from the private
sector banks receiving CIP status from the Government almost every year.
Received the best bank in Bangladesh Awards from Global Finance, UK in
1999, 2000 & 2004.
It is connected to 830 offices of 230 foreign banks in 74 countries.
IBBL received A+ rating in CRISL ( Credit Rating Information & Services)
3.8 DEPOSIT:
Islami Bank is one of the fastest growing banks in Bangladesh. In every aspect Islami
banking concept and as 1st introducer of this banking system in Bangladesh Islami bank
plays a superior position in the whole banking sector in Bangladesh. In that stream of
flows total deposits achieved by IBBL at Tk. 107,779 Million as on 31.12.05 as against
Tk. 87,841 Million as on 31.12.04 of the preceding year registering an increase of Tk.
19,938 Million i.e. (35 percent as compared to the growth rate of 12 percent of the
Banking Sector during 2005.) Total number of depositors of IBBL increased to 2,604,266
as on 31st December 2007 from 2,111,122 of the preceding year, registering an increase of
24 percent.
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Generally Islami bank has its own product line such as Mudaraba Savings Account
(MSA), Mudaraba Special Scheme (MSS), Mudaraba term Deposit (MTDR), Mudaraba
Short Notice A/C (MSNA), Mudaraba monthly profit distribution Scheme (MMPDS)
etc. This entire product makes a tremendous response over the client. More over the client
are become very much interested to accept the new methodology introduce by IBBL
instead of conventional Banking methodology where there is no use of terms call
INTEREST. Then recently IBBL introduce a New Product Call Mudaraba Savings Bond
(MSB) already augment resources matching with its asset structure; it has received
tremendous response. In 1998, 10 year and 5 year’s term Mudaraba Special Savings
(Pension) Scheme has been introduced to meet the expectation of the existing/potential
depositors of the Bank that has also received tremendous response.
Islami Bank Bangladesh Limited (IBBL) mobilizing its deposits thirteen (13)
different types of accounts, which are as follows:
Al-wadeeah current account
Mudarabah savings account
Mudarabah term deposit account
Mudarabah special noticed account
Mudarabah hajj savings account
Mudarabah special savings(pension) account
Mudarabah savings bond scheme
Mudarabah foreign currency deposit(savings) account
Mudarabah monthly profit deposit account
Mudarabah mohor savings account
Mudarabah waqf cash deposit account
Foreign currency account
Nonresidents’ investor taka account
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3.9 Modes of Local Remittance:
There are four modes of remittances which are as under:
A) DD-Demand Draft
B) TT-Telegraphic Transfer
C) PO-Payment Order
D) Online Banking
Demand Draft
According to Section 85 (A) of the Negotiable Instruments Act, a demand draft is “an
order to pay money drawn by one office of the bank upon other office/branch of the same
bank for a sum of money payable to order on demand”. Thus, the followings are the
essential features of a Demand Draft issued by a bank:
It is a negotiable instrument
It is drawn by one office/branch of a bank upon another office/branch of the same
bank.
It is payable on demand.
Its payment is to be made to the person whose name is mentioned in the
instrument or according to order. In other words, it can not be made payable to the
Issuance of DD
A prescribed application form bearing No. F-20 is required for effecting remittance
through D-D and the following columns should be filled in properly:
Name and address of the applicant.
Telephone No. (if any) .
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Date
Signature of the applicant
Name of the payee
Drawee branch
Amount in figure and words.
Commission is to be realized/charged as per Head Office circular.
At present min. Tk. 23/-
For Tk. 1-20,000 (Com.20+Vat 3), but for Tk. 20,001 and above Tk. 1/thousand
and vat @ 0.15%
Total amount should be deposited by the party in cash or cheque as per
arrangement.
Priented DD block/leaf to be filled in by a band official as per request of the purchaser i.e.
Name of the issuing branch
Date
A/c. payee Rubber stamp
Payee’s name
Amount in words and figure
Drawee branch
DD should be signed by two authorized officials
Test Number should be given for DD of Tk. 25,000/- & above.
Amount should be written by a cheque writer in red ink/ Protect graph machine
should be used for greater security.
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Payment of Draft
The drawee branch should exercise proper care while paying drafts.
When the draft is presented to the drawee branch for payment, the particulars of
the draft is/are checked with the advice and signature(s) therein to be verified.
Payment of the DD has not been stopped is to be ensured
Verification of Test no, if any, is to be done
If the DD issued for cash payment A/c.Payee’ rubber stamp’ should be cancelled
and a letter requesting the drawee branch to pay the DD in chash should be issued
under sealed cover and signature of the payee should be attested.
DD Advice should be sent on the same day.
The drawee branch should ensure that the payment of the instrument is made in
due course.
As the demand draft is payable to order it is duty of the paying branch to obtain
identification of the payee if payment is desired over counter.
If the DD is presented through a bank, the endorsement(s) appearing on the
instrument should be prima-facie in order of certification by the collecting banker.
Though there is no time limit for presentation, the paying bank should put an
enquiry if a draft is presented after a reasonable period say 6 months. Such a draft
may be paid if the collecting banker certifies that amount has been credited to the
payees A/C in absence of such a certificate, it would be advisable to return the
draft for revalidation before payment.
If the draft is not presented for long time, it is practice the banker to contact the
buyer.
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Accounting entries for Payment of DD
DD advice received without instruments
Dr.- IBG A/c.
Cr.- XML(file)
After receiving DD (instrument)
Dr.- DD Payable A/c.
Cr.- Party’s A/c.
Cancellation of Draft
Sometimes the purchaser returns the draft to the issuing branch and requests for payment
by cancellation thereof. In such case we must make sure that the request is from the
genuine purchaser, that the draft was issued by him and is not a fake one and that he has
not already issued a duplicate thereof. However, if the purchaser of the draft makes a
request to cancel the draft, the bank should do so after taking the following precautions:-
Bank should satisfy itself that the draft has not been delivered to the payee. Section 46 of
the NI Act states that the making, accepting and endorsement of a negotiable instrument
is completed only when it is delivered to the person concerned. Thus, a banker should
refuse to cancel the draft. If it is found that the draft has been delivered to the payee/ As a
matter of fact, the purchaser losses the right of getting the draft cancelled as soon as he
sends the drafts to the payee. If the purchaser wants to get the draft cancelled after
delivering it to payee he can do so only with the consent of payee.
If the draft is sent by post, the act of posting itself proves the delivery of the draft to the
payee. This is because the post office is taken as the agent of the payee of the draft.
Payment by Cancellation of Original DD
Obtain application from the purchaser along with original DD.
Obtain signature on back page of the DD and IBDA.
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Realise cancellation fees (Tk.20/-).
The signature of applicant must be verified from the signature on the original from
application available at branch record.
An IBDA for the same amount should be sent to the payee branch mentioning
particulars of DD & IBC A/c
Destroy the signature portion of the DD and write in red ink DD paid by cancellation
and kept DD with Dr. voucher.
Accounting Entries for Payment by cancellation
Dr. IBG A/c.
Cr. Party’s A/c. or Cash.
TT (Telegraphic Transfer)
Telegraphic transfer is so far the quickest method of transferring funds from one place to
another. Some times, the remitter of the funds requires the money to be available to the
payee immediately. In that case the banker is requested by the remitter to remit the funds
over telephone. It is an instruction conveyed by telegraph/telex/telephone to the drawee
branch for paying certain amount of money to a specified person.
Issuance of TT
TT application from (F-22) is to be filled in by the remitter with full particulars signature
of the remitter is to verified by the bank’s officials. Money to be received in cash or by
debiting remitters account with commission and Telex/Telephone charges. Entry should
be given in B-44 branch wise serially under supervision of authorized official. Entry
should be given in B-44 branch wise serially under supervision of authorized official.
Message to be passed immediately to the drawee branch under secret test by Telex,
Telephone, Telegram followed by IBCA for confirmation.
Payment of TT
The amount transferred by TT is either credited to the account of the beneficiary, if he/she
maintains an account, or paid by means of a TT payment order if he/she does not
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maintain an account. Cash is paid to the beneficiary on proper identification, if he/she has
no account.
Accounting Entries for payment of TT:
Dr. IGB A/c (only one voucher against day long transaction)
Cr. Cash/Remittance’s A/c/ cheque
Payment Order
Payment order is meant for making payment of the banker’s own or of the customers dues
locally and not for effecting any remittance to an out station. In a sense, the payment
order is used for making a remittance to the local creditors.
Issue and payment of payment order
F-19, should be filled in properly by the customer. Total amount should be deposited
through cheques/cash
Commission to be ralised as per bank’s circular:
From Tk. 1/- upto Tk. 10,000 Tk. 17/-
From Tk. 10,001/- upto Tk. 1,00,000/- Tk 23/-
From Tk. 1,00,001/- upto Tk. 5,00,000/- Tk. 35/-
From Tk. 5,00,001/- upto Tk. 10,00,000/- Tk. 47/-
From Tk. 10,00,001/- and above Tk. 56/-
Printed payment order leaf should be filled in as per F-19 and signed by two
authorized officers.
The instrument should be handed over to the purchaser.
Payment orders are required to be discharged by the beneficiary, where applicable on
revenue stamp of appropriate value against in cash or through account.
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Accounting Entries for Issuance of Payment Order:
Dr. Cash Party’s A/c.
Cr. Payment Order A/c.
Cr. Sundry deposit (VAT)
Cr. Income A/c.: Commission.
Accounting Entries for Payment of Payment Order:
Dr. Payment Order A/c.
Cr. Cash /Party’s A/c
Remarks: No Test is required for payment order.
Balancing of DD & PO
Fortnightly or monthly all outstanding entries of DD & PO should be balanced. Balanced
must agree with GL. However, PO are balanced daily as the register has been designed on
self balancing method. No balancing is required for TT.
General Instructions for Issuance of Duplicate Draft/Payment Order
Immediate caution mark and other precautionary measures shall have to be taken on
receipt of the lost news whether verbal, written or over telephone.
Obtain a written application from the purchaser of the instrument stating that instrument
was lost from his possession and the circumstances there to along with the copy of G. D.
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3.10: Comparative figure of IBBL:
Particulars Actual
as on
31.12.08
Target
for 2009
Position
as on
31.12.09
Achieve-
ment as on
31.12.09
Growth/
increase(decrease) as
on 31.12.2009 over
31.12.2008
Total Deposit 200725 247000 243730 99% 43005 21%
a) Cost Free Deposit 21723 32000 25702 80% 3979 18%
b) Cost Bearing
Deposit
179002 215000 218028 101% 39026 22%
Total Investment 198763 149807 238990 96% 40227 20%
a) General
Investment
191230 230000 227853 99% 36623 19%
b) Investment in
shares & Securities
7533 19807 11137 56% 3604 48%
Overdue 4496 6750 5665 119% 1169 26%
% to General
Investment
2.35% 2.93% 2.49%
Classified
Investment
4311 6000 5956 101% 1645 38%
% to General
Investment
2.25% 2.61% 2.61%
Operating Profit 8303 8940 8437 94% 134 2%
Import 168329 219000 161230 74% (7099) -4%
Export 93962 127000 106424 84% 12462 13%
Remittance 140404 210000 194716 93% 54312 39%
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3.11: INVESTMENTS:
Investment of Islami Bank increased to Tk 93,644 million as on 31.12.2005 from Tk
75,859 million as on 31.12.2004 showing an increase of Tk. 17,785 million, i.e. 18.99%
growth as against 11.75% growth of investment of the banking sector. This increased
investment growth of the Bank in 2007 may be attributed to the thrust given to promote
investment in order to deploy the surplus liquidity.
Pursuant to the investment policy adopted by the bank, currently a 5 year Perspective
Investment Plan has be drawn up for the year 2007 to 2011 and put into implementation.
The plan has been formulated keeping in view the national economic priorities and
aiming at diversification of the investment portfolios by size, sector, geographical area,
economic purpose & securities to bring in phases all sectors of the economy & all types
of economic activities and different economic strata of the society within the fold of
Bank’s investment operation.
3.12: Foreign Exchange Business:
IBBL Farmgate Branch is an Authorized Dealer (AD) Br Approved by the Bangladesh
Bank. So the branch can operate its foreign exchange business in full swing. Total foreign
exchange business handled by IBBL during the year 2009 was Taka 462370.00 million.
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Trend of Investment: 2002 to 2007
35,23846,281
59,007
75,859
93,644
0
20,000
40,000
60,000
80,000
100,000
1 2 3 4 5
Year
Investment
Mill
ion
Taka
Import:
In term of Import IBBL during the year 2009 the bank opened Tk. 161230.00 import
L/Cs where it was Tk. 168329.00 L/Cs in the year 2008. Which decreased by -4%.
Export:
During the year 2009 the bank handled Tk. 106424.00 Million export as against 93962.00
Million exports in 2008. Which increased by 13%. Islami Bank Bangladesh LTD has to
follow a restriction for both import and export business as they have to conceder both
permissibility of Islami Shariah as well as the rules and regulation of Bangladesh Bank.
Remittance:
For quick mobilizing remittance IBBL introduce SWIFT system by which the people who
work in foreign can send their money with in short time more over it helps to transfer the
L/C’s with in the short period of time as well as in most secure from of transmission. In
term of Remittance IBBL during the year 2009 the Bank total Remittance Tk.194716
Million where it was Tk.140404 million in the year 2008, Which increased by 39%
3.13: The Comparative Figure Of Import Export And Remittance Are
Given Below:
Taka in Million
Particulars 2009 2008 % of growth in
2009 over 2008Amount % of total Amount % of total
Import 161230 34.87% 168329 41.80% -4%
Export 106424 23.02% 93962 23.33% 13%
Remittance 194716 42.11% 140404 34.87% 39%
Total 462370 100% 402695 100%
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3.14 Present Status of IBBL:
Today IBBL is the largest private sector joint-venture bank amongst the contemporary
private banks in Bangladesh with the following parameters of performance as of
31.12.2009
Particulars Actual as on
31.12.08
Position as on
31.12.09
Growth/increase
(decrease) as on
31.1209 over
31.12.08
Deposit 200,725 243,730 21%
Investments 198,763 238,990 20%
Overdue 4,496 5,665 26%
Operating Profit 8,303 8,437 2%
Import 168,329 161,230 -4%
Export 93,962 106,424 13%
Remittance 140,404 194,716 39%
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3.15 Capital History:
(Figures in million Tk.)
Year Authorized
Capital
Issued, Subscribed
and Paid-up
Capital
Rate of
Increase
Source of Paid-up
Capital
2005 5,000.00 2764.80 20.00% Bonus Share/2004
2006 5,000.00 3,456.00 25.00% Bonus Share/2005
2007 5,000.00 3,801.60 10.00% Bonus Share /2006
2008 10,000.00 4,752.00 25% Bonus Share /2007
2009 10,000.00 6,177.00 Bonus Share /2008
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CHAPTER-4INVESTMENT POLICY
OF
ISLAMI BANK BANGLADESH LIMITED
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Conventional and Islamic bank operate to earn profit but they differ in the way of
operation. Islami Bank emphasized legitimate (Halal) business. On the other hand
traditional bank is not operated by the following rules and regulations approved by Islam
that is the most powerful contradiction between them. Islamic Bank does not invest in
loans and fixed interest securities. It can invest in ordinary share only while interest based
bank can invest in loans and different kinds of securities. Islami Bank establishes and
participate projects with its client as a partner and bears the risk along with the client on a
proportionate basis. Besides, other conventional banks sometimes finance projects but do
not bear risk. Finally, the concept of Islamic Bank is to establish on egalitarian society
based on principles of social justice and equity. Whereas traditional banks pay a fixed
interest on savings, time deposit and grant loans with interest for any purpose. We have
gathered the fact that investment management is the theme of IBBL. The bank takes
deposits and invests the same based on the profit-loss sharing. Bank go for the investment
mainly which are long term and profitable in nature. IBBL also give high concentration
on the investment that will generate more employment. As investment is one of the most
priority areas for the IBBL, so it needs to cautious in investment decision. To ensure
proper investment IBBL always goes with in-depth study before making the investment.
So in the next phases we are going to demonstrate the way IBBL follow the manage
investment.
Part-1 INVESTMENT MANAGEMENT OF IBBL:
One of the significant and revolutionary development in the banking area of the world
during last four decades is the emergence and extra ordinary development of Islamic
Banking in different countries of the world which has drawn the attention of the scholars
and general public of the Muslim and non-Muslim countries including the world bodies
like International Monetary Fund, World Bank etc.
4.1 Investment:
The special feature of the investment policy of Islamic Banks is to invest based on profit-
loss sharing system in accordance with the tenets and principles of Islamic Sharia.
Earning of the profit is not the only motives and objectives of the Islamic Bank’s
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investment policy rather emphasis is given in attaining social good and in creating
employment opportunities.
4.2 Investment Mechanism of IBBL:
4.3 Investment Instrument of IBBL:
1. Bai-Mechanism (Trading mode):
A) Bai-Murabaha:
Bai- murabaha may be defined as a contract between a buyer and a seller under which
the sells certain specific goods (permissible under Islamic shariah and the law of the land)
to the buyer at a cost plus agreed profit payable in cash or on any fixed future data in
lump sum or by installments. The marked up profit may be fixed in lump sum or in
percentage of the cost price of the goods.
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A) Bai-Murabaha
B) Bai-Muajjal
C) Bai-Salam
D) Istishna’a
A) Mudaraba
B) Musharaka
A) Hire Purchase
B) Hire Purchase Under shirkatul Melk
Bai- Mechanism Share Mechanism Ijara Mechanism
Important features:
It is permissible for the client to offer an order to purchase by the bank particular
goods deciding its specification and committing him to buy same from the bank on
murabaha, i.e. cost plus agreed upon profit.
It is permissible to make the promise binding upon the client to purchase from the
bank, that is, he is to satisfy the promise or to indemnify the damages caused by
breaking the promise without excuse.
It is also permissible to take cash / collateral security to guarantee the implementation
of the promise or indemnify the damages.
Stock availability of goods is a basic condition for signing a Bai-murabaha agreement.
Therefore, the bank must purchase the goods as per specification of the client to
acquire ownership of the same before signing the Bai-Murabaha agreement with the
Client.
After purchase of goods the Bank must bear the risk of goods until those are actually
sold and delivered to the Client, i.e., after purchase of the goods by the Bank and
before selling of those on Bai-Murabaha to the Client buyer, the bank bear the
consequences of any damages or defects, unless there is an agreement with the Client
releasing the bank of the defects, that means, if the goods are damaged, bank is liable,
if the goods are defective, (a defect that is not included in the release) the Bank bears
the responsibility.
The Bank must deliver the specified Goods to the Client on specified date and at
specified place of delivery as per Contract.
The bank shall the goods at a higher price (Cost + {profit) to earn profit. The cost of
goods sold and profit markup therewith shall separately and clearly be mentioned in
the Bai-Murabaha agreement. The profit Mark-up may be mentioned in lump sum or
in percentage of the purchase/cost price of the goods. But, under no circumstance, the
percentage of the profit shall have any relation with time or expressed in relation with
time, such as per month, per annum etc.
The price once fixed as per agreement and deferred cannot be further increased.
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It is permissible for the bank to authorize any third party to buy and receive the goods
on Bank behalf. The authorization must be in a separated contract.
B) Bai-Muajjal:
Bai-Muajjal may be defined as a contract between a buyer and seller under which the
seller sells certain specific goods permissible under Islamic Shariah and law of the
country to the buyer at an agreed fixed price payable at a certain fixed future date in lump
sum or within a fixed period by him as per order and specification of the buyer.
Important feature:
Bank is not bound to declare cost of goods and profit mark-up separately to the
client.
Spot delivery of the item and payment is deferred.
The bank transfers ownership and possession of the goods to the client before
receipt of sale price.
Client may offer an order to purchase by the bank any specified goods and
committing himself to buy the same from the Bank on Bai-Muajjal mode.
It is permissible to make the promise binding upon the client to purchase from the
bank. That is, he is either to satisfy the promise or to indemnify damage caused by
breaking the promised.
Cash /Collateral Security should be obtained to guarantee the implementation of
the promise or to indemnify the damages.
Mortgage / Guarantee /Cash Security may be obtained before / at the time of
signing the agreement.
Stock and availability of goods is a pre- condition for Bai- Muajjal agreement.
The responsibility of the bank is to purchase the desired goods at the disposal of
the client to acquire ownership of the same before singing the Bai-Muajjal
agreement with the client.
The Bank after purchase of good must bear the risk of goods until those are
actually delivered to the client.
The Bank must deliver the specified goods to client on the specified date and at
specified place of delivery as per contract.
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The Bank may sell the goods at one agreed price, which will include both the cost
price and the profit.
C) Bai-Salam:
Bai-Salam may be defined as a contract between a buyer and a seller under which the
seller in advance in the certain commodity/products permissible under Islamic Shariah
and the law of the land to the Buyer at an agreed price payable on execution of the said
contract and the commodity products to the buyer at a future time in exchange of an
advance price fully paid on the spot.
Importance Features:
Bai-salam is mode of investment allowed by Islamic Shariah in which
commodity/product can be sold without having the said commodity (ies)/product(s) either
in existence or physical/constructive possession of the seller. If the commodity /product
are ready for sale, Bai-Salam is not allowed in Shariah. Then sale may be done either in
Bai-Muajjal mode of investment.
Generally, Industrial and agricultural products are purchased /sold in advance under Bai-
Salam mode of investment to infuse finance so that product is not hindered due to
shortage of fund/cash.
I. It is permissible to obtain collateral security from the seller client to secure the
investment from any hazards Vis non-supply of supply of commodity
(ies)/product, supply of low quality commodity (ies)/ product(s) etc.
II. It is also permissible to obtain mortgage and /or personal guarantee from a third
party as security before the signing of the agreement or at the time of signing the
agreement.
III. Bai-salam on a particular commodity (ies)/product(s) or on a product of a
particular field or farm cannot be affected.
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D) Istishna’a:
Istishna’a is a contract between a manufacturer/seller and a buyer under which the
Manufacturer/seller sells specific product(s) after having manufactured, permissible under
Islamic shariah and Law of the Country after having manufactured at an agreed price
payable in advance or by installments within a fixed period or on/within a fixed future
date on the basis of the order placed by the buyer.
Important Feature:
i. Istisna’a is an exceptional mode of investment allowed by Islamic shariah in
which product(s) can be sold without having the same in existence. If the
product(s) are ready for sale, Istishna’a is not allowed in shariah. Then the sale
may be done either in Bai-Murabaha or Bai-Muajjal mode of investment. In
this mode, deliveries of goods are deferred and payment of price may be
deferred.
ii. It facilitates the manufacturer sometimes to get the price of the goods in
advance, which he may use as capital for producing the goods.
iii. It gives the buyer opportunity to pay the price in some future dates or by
installments.
iv. It is a binding contract and party is allowed to cancels the Istishna’a contract
the price is paid and received in full or in part or the manufacturer starts the
work.
v. Istishna’a is specially practiced in Manufacturing and industrial sectors.
However, it can be practiced in agricultural and constructions sectors also.
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2. Ijara Mechanism (Leasing Mode):
A) Hire purchase/Ijarah:
The term Ijarah has been derived from the Arabic words Ajr and Ujrat, which means
consideration, return, wages or rent. This is really the exchange value or consideration;
return wages font of service of an asset. Ijarah has been defined as a contract between two
parties, the Hiree andHirer where the Hirer enjoys or reaps a specific service or benefit
againsta specified consideration or rent from the asset owned by the Hiree .to a Hirer
against fixed rent or rentals hires out a certain asset for a specified period.
B) Hire Purchase under Shirkatul Melk:
Hire Purchase under Shirkatul Melk is a Special type of contract that has been developed
through practice. Actually, it is a synthesis of three contacts:
i) Shirkatul Melk: Shirkat means partnership. Shirkatul Melk means share in
ownership. When two or more persons supply equity, purchase an asset, own the
same jointly, and share the benefit as per agreement and bear the loss in
proportion to their respective equity, the contract is called Shirkatul Melk
contract.
ii) Ijarah: The term Ijarah has been derived from the Arabic words (Air) and
(Ujrat) which means consideration, return, wages or rent. This is really the
exchange value or consideration, return, wages, rent of service f an asset. Ijarah
has been defined as a contract between two parties, the Hiree and Hirer where the
Hirer enjoys or reaps a specific service or benefit against a specified consideration
or rent from the asset owned by the Hiree. It is a hire agreement under which the
Hiree to a Hirer against fixed rent or rentals hires out a certain asset for a specified
period.
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iii) Sale: This is a sale contract between a buyer and a seller under which the
ownership of certain goods or asset is transferred by seller to the buyer against
agreed upon price paid / to be paid by the buyer.
Thus, in Hire purchase under Shirkatul Melk mode both the Bank and the
Client supply equity in equal or unequal proportion for purchase of an asset like
land, building, and machinery, transport etc. Purchase the asset with that quit
money, own the same jointly, share the benefit as per agreement and bear the loss
in proportion their respective equity. The share, part of portion of the asset owned
by the bank is hired out to the client partner for a fixed rent per unit of time for a
fixed period. Lastly the bank sells and transfers the ownership of its
share/part/portion to the client against payment of price fixed for the either
gradually part by part or in lump sum within the hire period or after the expire of
the hire agreement.
Importance Features:
In case of Hire Purchase under Shirkatul melk transaction the assets /
property involved is jointly purchased by the Hiree (Bank) and the Hirer
(client) with specified equity participation under Shirkatul Melk contract
in which the amount of equity and share in ownership of the asset of each
partner (Hiree Bank and Hirer Client) Are clearly mentioned. Under this
agreement, the Hiree and the become co-owner of the asset under
transaction in proportion of their respective equity participation.
In Hire Purchase under Shirkatul Melk agreement, the exact ownership of
both Hiree (Bank) and Hirer (Client) must be recognized. However, if the
partners agree and wish that the asset purchased may be registered in the
name of any of them or in the name of any third party, clearly mentioning
the same in the Hire purchase Shirkatul melk agreement.
The share /part of the purchase asset owned by the Hiree (Bank) is put at
the disposal / possession of the Hirer (client) keeping the ownership with
him for a fixed period under a hire agreement in which the amount of rent
per unit of time and the benefit for which rent to be paid along with all
other agreed upon stipulation are also to be clearly stated. Under this
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agreement, the Hirer (client) becomes the owner of the benefit of the asset
but not of the asset itself, in accordance with the specific provision of the
contract which entitles the Hiree (Bank) is entitled for the rentals.
As the ownership of hired portion of the asset lies with the hiree (bank)
and rent is paid by the Hirer (client) against the specific benefit, the rent is
not considered as price of the asset.
In the Hire Purchase under Shirkatul Melk agreement, the Hiree (Bank)
does not sell or the Hirer (Client) does not purchase the asset but the Hiree
(bank) premise to sell the assets to the Hire (client) part by part only, if the
Hirer (client) pays the cost price /equity /agreed price as fixed for the asset
as per stipulation within agreed upon period on which the hirer also gives
undertakings.
The promise to transfer legal title by the Hiree and undertaking given by
the Hirer to purchase ownership of the hired asset upon payment part as
per stipulations are affected only when it is actually done by a separate
sale contract.
3) Share Mechanism:
A) Mudaraba: It is a form of partnership where one party provides the fund while the
other provide the expertise, labor and the letter referred to at the Mudarib any profits
accrued are shared between the two parties on a pre –agreed basis, while capital loss in
exclusively born by the partner providing the capital.
Importance Features:
Bank supplies capital as Sahib- al –Mall and client invest if in the business
with his experience.
The client maintains administration and management
Profit is divided as per agreement.
Bank bears the actual loss alone.
Client cannot take another investment for that specific business without the
permission of the Bank.
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C) Musharakah:
The term Shirkat and Musharakah have been derived from Arabic words “Shairkah” and
“Sharika.” The word shirkah means a partnership between more than one partners. Thus
the ward “Musharaka” and “Shirkat” means a partnership established between two or
more partners for purpose of a commercial venture participate both in the capital and
management where the profit may be shared between the partners as per agreed upon
ratio and the loss. If any incurred, is to be borne by the partners at per capital /equity
ratio.
Important Features:
The investment client will normally run manages the business. The bank shall take part in
the policy and decision making as well as overseeing (supervision and monitoring) the
operation s of the business of the client. The bank may appoint suitable personal(s) to run
the manage the business and to maintain books of accounts of the business property. As
the investment client shall manage the enterprise, the bank may more share of profit to
him than that of his proportion capital contribution. Loss, if any, shall be shared on the
basis of capital ratio.
5.4 Operational Procedure of Investment of IBBL:
Induction of client
Application
Categorization
Processing and appraisal
Sanction
Documentation
Purchase of goods by the Bank
Taking delivery of goods by the Bank
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Sales and delivery of goods to the client
Application:
Obtain application in triplicate from the client of F-167A and record the same
in the Investment Proposal Received and Disposal Register (B-53).
Obtain and affix attested photograph(s) of the Proprietor /Partner/Directors/
Trustee/ Administrator on the top right hand corner of the application.
Scrutinize the application of the Client to see that-
(a) All columns are properly field in;
(b) Particulars and information given therein are complete and correct in
all respects;
(c) All required Documents/papers as listed in the footnote for the
application is submitted;
(d) It is signed by the client as per specimen signature with the bank and
duly verified by the authorized official of the bank.
Categorization:
Categories the proposal as under:
Hire Purchase under Shirkatul Melk Commercial:
Investment on hire purchase under Shirkatul Melk mode to individual
/firm/company /society for commercial purpose shall be termed as hire purchase
under Shirkatul Melk Commercial.
Hire Purchase under Shirkatul Melk Industrial:
Hire Purchase under Shirkatul Melk investment to industrial undertaking in the form
of land, building, machineries, equipment, transport, etc shall be termed as Hire
Purchase under Shirkatul Melk Industrial
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Hire Purchase under Shirkatul Melk Agriculture:
Hire Purchase under Shirkatul Melk investment to agriculture sector in the form of
Agriculture equipment’s, machineries, shallow Tube–well, Tractor, trailers, Transport
etc. shall be termed as Hire Purchase under Shirkatul Melk agriculture.
Hire Purchase under Shirkatul Melk Transport:
Hire Purchase under Shirkatul Melk Industrial in the form of transport –Bus, truck,
car, taxi, lunch, steamer, cargo vessel, air transport etc. shall be termed as Hire
Purchase under Shirkatul Melk transport.
Hire purchase under Shirkatul Melk Real Estate:
Hire Purchase under Shirkatul Melk Industrial in the form of land building, market,
apartments, for use /rental shall be termed as Hire Purchase under Shirkatul Melk
Real Estate.
Processing and Appraisal:
Enter the Application in the “Investment Proposal Received and Disposal Register (B-53)
and allot a Serial Number to it.
Examine shariah permissibility of the goods. Reject the proposal outright, if not
permitted by Islamic Shariah.
Check-up Credit Restriction Schedule of Bangladesh Bank and Head Office
Current Investment Policy Guidelines.
Visit the Business establishment of the Client. Talk to the business and important
personalities of the locality to ascertain the Honesty, Integrity and Business dealings
of the Client.
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Request for confidential report of the client from local Bank Branches. Confident
Report from Credit Information Bureau (CIB) of Bangladesh Bank through Head
Office Investment Division as per Instruction Circular of Head Office in this Regard.
Obtain Financial Statement/Balance Sheet of the Client for the last three
consecutive years for Investment Proposals of Tk. 50.00 lac or above as per Head
Office Instruction.
Inspect Land, Building, other Assets and Properties proposed to be Mortgaged or
Hypothecated.
Forward Documents, Title Deeds and other relevant Papers to approve Lawyer of
the Bank for examination and furnishing his opinion.
Obtain Lawyer’s Opinion as per clause No. 8.02.
Please study the following carefully and note down the actual findings in the
Appraisal Form against each item :
Work out the purchase and sale prices of the goods as per guidelines.
Documentation:
Before purchasing the asset/property by the Bank, obtain sufficient collateral securities as
mentioned in the sanction advice along with the following charge documents properly
executed i.e. duly filled in, signed, stamped, verified and witnessed where necessary:
Hire Purchase under Sirkatul Melk Sanction Advice deal-wise duly accepted by
the client.
Hire Purchase under Shirkatul Melk Agreement (Deal-wise).
Letter of Pledge (Deal-wise)/Mortgage Deed.
Single party D.P. Not, if there is no guarantor.
Double party D.P. Not, if there is guarantor (s) to be made by the Client in favor
of the guarantor and endorsed by the later to the Bank.
D.P. Not Delivery letter.
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Letter of Hypothecation for the asset(s) and Client’s stock in Trade/work- in
process.
Letter of Disclaimer, (if stored in Client’s/Party’s own/hired Godown.
Insurance policy (If stored in Client’s/Party’s Godown/yard under Bank’s
effective control) duly recorded in insurance register.
Letter of guarantee.
Balance confirmation letter.
Letter of installments.
Letter of Disbursement.
If the investment is made collaterally secured by Mortgage of property, obtain the
following documents:
In case equitable mortgage, Memorandum of Deposit of Title Deep (MDTD) signed
by the owner of the property.
In case of Legal Mortgage, Registered Mortgage Deed should be obtained.
Personal Guarantee of the owners of the property on.
Original Title Deeds with CS, RS, SA, Mutation Parcha, DCR of the property and
Mutation record.
Up-to-date Rent Receipt.
Non-encumbrance Certificate along with Search Fee Paid Receipt of the concerned
Registry/Sub-Registry office.
Site plan (Map/Naksha) of the Mortgaged property.
Where the Investment is secured by pledge/Hypothecation of Stock-in-Trade,
Machineries etc., also obtain the following Document:
Letter of Pledge asset & goods security, for Client’s stocks in Trade/work-in-
Process etc. if any.
Letter of Hypothecation for Client’s stocks stores, Work-in-Process etc.
Legal Mortgage of Machineries with full details of each machinery
In case the investment collaterally/ additionally secured by pledge of Shares of
reputed Public Limited Company on Bank’s approved list and quoted in the Stock
Exchange, the following additional documents are to be obtained:
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Agreement for Pledge of share along with original share certificates (No share in
the name of minor shall be accepted as security).
Blank Share Transfer Deed in Duplicate – on copy signed, dated and another
copy signed and undated.
Share Delivery letter addressed to the Bank.
Letter to the concerned Company to register Line in Bank’s favor. This notice
shall be sent be registered acknowledgement due post (registered A/D post) and
confirmation of recording the Line shall be obtained from the concerned
company.
Letter of authority in Bank’s favor duly signed by the shareholder to collect
dividend /Bonus on his behalf on the share pledged to the Band. In case of
Investment to partnership Firms, obtain the following Document:
a. Copy of partnership deed signed by all partners.
b. Copy of partnership deed duly attested by a 1st Class Gazetted officer
with the original copy and attested by the incumbent-in-charge of the Branch.
In case of investment to private or public Limited Company, obtain the following
additional document:
Obtain certified copy of the Memorandum and Articles of Association of the
company to ensure that the company has necessary power to borrow/avail
investment from any Bank.
Resolution of the board Directors of the Company to avail
Investment/Facility/Borrow, do Business with IBBL and authorizing the office
bearers to execute necessary Documents.
Personal Guarantee of the Directors of the Company.
If the investment is allowed on Hypothecation of assets, in addition to other
charge documents, 1st charge under relevant section of the Company’s Act-1994
shall be created in Bank’s favor in respect of Company’s assets prescribed as
security. This charge shall be created with the registrar of Joint Stock
Companies within 21 days from the date of execution of relative Change
Documents.
Certificate issued by the registrar of Joint Stock Companies under section 114 of
The Companies Act-1994 in respect of creation of charges.
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Copies of Memorandum and Articles of Association with the latest amendments,
if any, duly certified by the registrar of joint stock companies and attested by the
managing director on every page with official seal of the company and duly
verified by the Incumbent-In-Charge of the Branch.
A copy of the Certificate of Incorporation duly attested by the Incumbent-In-
Charge of the Branch.
A copy of the certificate of commencement of Business (incase of publish
Limited company) duly attested by the Incumbent-In-Charge of the Branch.
In case of investment to a trust organization obtain the following Document in
addition to other charges Documents:
Copy of trust deed duly attested by a 1st class Gazette officer and verified by the
incumbent-in-charge of the branch with the original copy. The Trust Deed must
contain a clause authorizing the Trustees to do Business with banks and to avail
investment facilities /borrow from banks.
Resolution of the Board of Trustees to do business with IBBL and avail
investment/borrow from IBBL.
The charge documents and all other agreements shall be signed /executed by
persons authorized by all the members of the board of Trustees, in Trustees are
authorized to delegate their powers by the trust Deed; otherwise all the Trustees
must sign/execute the charge documents and all other agreements.
Personal guarantee of all the members of the board of trustees must be obtained.
In case of investment to co-operative security, obtain the following documents also:
Clearance from the register of co-operative societies for doing business and
avail faculties / investment from IBBL within the annual borrowing limit of the
society.
Litter to be issued to; the concerned registrar of co-operative societies under
registered A/D Mail informing about allowing investment /facility to the
concerned society by the bank as per clearance accorded by him.
Personal guarantee of the office Bearers of the society if their personal capacity.
A copy of the bylaws of the society duly certified by the registrar of the co-
operative societies.
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Signature of the Client:
After completion of Document, enter Document in Documents Execution Register
(B-103). Movement of Document, if any, should be duly recorded in the Document Ex-
custody Register duly singed by the Custodians.
Purchase of Goods by the Bank:
That the goods desired by the Client are first purchased by the Bank and
the ownership of the Bank on the goods is established, i.e. Bank must
transform its money into goods.
That after purchase of the goods, the risk of the goods is borne by the Bank
until the possession of the Merchandise has been passed on the Client.
That the specification of the goods, delivery schedule and other terms of
contract are fulfilled.
Obtain deal-wise application Order for Purchase on F-136 after due study.
Open investment account in Investment Account Opening Register (B-
102).
Enter the Account Particulars in the Investment Ledger (B-105).
It should be carefully noted that purchase of goods shall be made only
after completion of all the Documentation formalities, including Pre-Audit
memo (F215).
In case purchase of Bai-Murabaha goods by the Bank on Credit/deferred
payment basis, the Bank shall execute a Credit Purchase Agreement with
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the seller to that effect mentioning date of delivery of Goods to the bank
and that of payment by the Bank.
If the goods are to be purchased from the local or outstation market and
money is to be paid/remitted thereof and other expenses such s TA/DA,
transportation etc, shall be borne by the Bank, which shall ultimately be
loaded on the cost of Goods.
Taking Delivery of Goods by the Bank:
After finalization of purchase of Bai-Murabaha Goods either by the Bank officials
or through any Agent from the local or out station market the Bank shall request
the seller to deliver the goods purchased to the Bank’s Authorized official /Agent
or to the Bank go down against proper acknowledgement.
After taking delivery of the goods by the Bank or trough and Agent, the Bank
shall make payment of the price of the goods to producers /sellers /supplier
through DD/TT/PO against Cash memo which will exclusively be issued in the
name of the Buying Agent.
The Bank shall not be invest in such cases where the allotting Authority will not
accept the Letter of Authority and agree to deliver the goods to the Bank as per
authorization of this Allotted.
4.5 Mode Wise Investment:
Mode wise distribution of investment as on 31.12.2009 vis-à-vis corresponding period of
last year is given below:
(Amount in Million Taka)
Year Bai Mode Share Mode HPSM Others
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Amount % Amount % Amount % Amount %
2005 57739 59% 20 0.02% 30047 30% 10803 11%
2006 66386 55% 13 0.01% 39399 33% 14603 12%
2007 83769 54% 17 0.01% 50255 33% 19959 13%
2008 112766 59% 40 0.02% 67107 35% 11317 6%
2009 123146 58% 38 0.02% 75737 36% 13407 6%
Part-2 SPECIAL INVESTMENT SCHEMES OF IBBL:
Islami Bank Bangladesh Limited, since its inception, has been working for the upliftment
and emancipation of the underprivileged, suppressed, downtrodden and neglected
sections of the populace and has taken up various schemes for their well-being. The
objectives of these schemes are to raise the standard of living of low-income group,
development of human resources and creation of avenues for self-employment.
4.1.1 Household Durable Scheme (HDS):
The Household Durable Scheme has been introduced in 1993. The objective of the
scheme is to increase standard of living and quality of life of the fixed income group by
extending them investment facilities to purchase household articles such as furniture like
sofa set, wardrobe; electric and electronic equipment like Television, Refrigerator, Gas
cooker, Air Conditioner, P.C., Washing Machine, Electric Generator, Motor Cycle; Gold
Ornaments, Mobile phone; Medical Equipment, Engineering Equipment, Educational
Equipment etc.
Objectives
To assist service holders with limited income in purchasing household durable.
To assist the fixed income group in raising the standard of living.
To create opportunity for the service holders to enjoy the benefit of modern and
sophisticated living and at the same time lead a decent and honest life.
Eligibility
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Interested permanent officials of the following organizations may apply for
investment:
Government Organizations.
Semi-Government Organizations and Autonomous Bodies.
Banks and Financial Institutions.
Armed Forces, BDR, Police and Ansars.
Teachers of Universities, Government Colleges, School and Senior Madrashas.
Officers of International Financial & Relief Organization.
Officers of the multinational companies.
Officers of the local established and renowned public limited companies.
Permanent Teachers & Officers of prominent Private Universities, Medical
Colleges & University Colleges.
House Owners.
Doctors, Engineers, Architects, Chartered Accountants/ FCMA and other
important professionals.
Investment clients of IBBL.
Deposit client of IBBL.
Shopkeepers and Businessman.
Wage earners, Panel lawyers of IBBL, C & F Agents enlisted in IBBL etc.
Graduate & post Graduate Students of Universities, Medical Colleges,
Engineering Colleges, University Colleges for purchase of PC,
Medical/Engineering Equipment/ Machinery, Books etc.
Security
The investment client shall execute/provide the following documents in order to secure
the investment:
All required charges documents as per rules of the Bank.
A written undertaking to the effect that the monthly installments shall be paid
regularly.
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Personal guarantee of an official of the same rank or superior rank. The guarantee
shall have to be duly authenticated by the competent authority of the concerned
organization.
Personal guarantee of another person, preferably family membe
(Taka in
millions)
Particulars 2001 2002 2003 2004 2005 2006 2007
Household Durable
Scheme
588 735 866 887 911 879 879
4.1.2 Housing Investment Scheme (HIS):
One of the basic human needs is to have a house to live in. A house is an abode of peace
and happiness. Housing has now become an acute problem in the country, especially in
the towns, cities and metropolis. To meet this basic human need, Isalmi Bank Bangladesh
Limited is committed to contribute to this end to provide a peaceful and happy living. The
Bank has introduced “Housing Investment Scheme” with the objective to ease and
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0
200
400
600
800
1000
2001 2002 2003 2004 2005 2006 2007
Household Durable Scheme
minimize the housing problem and assist service holders and professionals with limited
income in materializing their dream of becoming owner of housing. Primarily the scheme
is extended to 6 divisional cities, which is being extended gradually to other greater
district towns.
Objectives
To extend the benefits of the investment of the Bank under the Scheme to
different sections of the people.
To assist in solving the existing housing problem of the country.
To assist the service holders and professionals with fixed income to arrange for
house of their own.
.Eligibility
Initially the following categories of people shall be eligible to apply for availing
investment facilities under this Scheme:
1. Officials of the Defense Forces.
2. Permanent Officials of Government, Semi-Government and Autonomous
Organizations.
3. Teachers of the established Universities, University Colleges & Medical
Colleges.
4. Graduate, Engineers, Doctors and established professionals.
5. Bangladeshi Officials of reputed Multinational Companies, International
Financial Organizations, Donor Agencies, foreign Embassies etc. Officials
of local established & reputed Public Limited Companies.
6. Wage earner professionals like Doctors, Engineer, Accountants, Teachers
and any other profession doing job abroad with hand-some some-package.
Security
Personal guarantee of the clients, his/her spouse, adult son(s) and daughter(s) shall
have to be obtained.
Mortgage of land and building to be constructed thereon, apartment/ flat/ house in
favor of the Bank till the full payment of dues to the Bank.
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An undertaking from the client as well as from the dependants (nominees) to the
effect that the retirement benefits including Provident Fund will be appropriated
towards adjustment of the house building investment liability of the client prior to
any other appropriation, if the liability relating thereto or any of it remains
unadjusted at the time of getting the retirement benefits.
(Taka in millions)
Particulars 2001 2002 2003 2004 2005 2006 2007
Housing Investment
Scheme
200 468 500 598 662 725 789
4.1.3 Real Estate Investment Program (REIP):
Professionals, Service-holders, Businessmen, Real Estate developer and other categories
of people who are not entitled for availing investment facilities under Housing Investment
Scheme, shall be eligible under this program. Investment is to be extended to build new
houses and for extension / completion of the house already constructed, commercial
building, shopping complex, flat/apartment etc.
Particulars 2007 2008 2009
Real Estate Investment 8348 8776 9101
4.1.4 Investment Scheme for Doctors (ISD):
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Islami Bank Bangladesh Limited has taken the initiative an introduced the “Doctors
Investment Scheme” to ensure modern treatment and medical facilities available to the
people through extension of Bank’s investment facilities for self-employment of newly
graduated doctors and the same time extending investment facilities to the established
medical practitioners to procure modern and sophisticated medical equipment.
Objectives
To provide investment facilities for establishment of chambers, clinics,
pharmacies and procurement of medical equipment by the unemployed medical
graduates and thus to provide self-employment.
To assist newly passed unemployed medical graduates to establish clinics by way
of formation of groups by 5 years.
To assist experienced and established physicians to procure improved and modern
medical equipment and thus to improve the standard and techniques of treatment.
Eligibility Criteria
Newly passed medical graduates who are willing to establish chambers,
pharmacies and small clinics in district and Thana level towns.
Experienced and established doctors who are settled in district and other towns but
cannot procure modern medical equipment to improve their techniques of
treatment.
Specialized and consulted physicians who are willing to procure latest and
specialized type of medical equipment.
Newly passed medical graduates who are willing to from groups in order to
establish clinic.
Priority is given to specialist and consultant physicians like dentists, child
specialists, and ophthalmologists etc.
(Taka in
millions)
Particulars 2001 2002 2003 2004 2005 2006 2007
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Investment Scheme for
Doctors
40 82 95 97 101 105 109
4.1.5 Rural Development Scheme (RDS):
Bangladesh is predominantly an agricultural country with vast majority living in rural
areas. More than 60% of the people live below the poverty line. Seasonal unemployment
and under-employment is so acute that many people remain idle and without job in most
of the time of the year. As a result people in large number are migrating to urban areas,
particularly in metropolis in search of employment thereby creating social and
environmental hazards. Islami Bank has, therefore, taken up a Scheme to reactive the
rural economy and develops model villages through integrated rural development
approach.
Objectives
The main objectives of the Scheme are:
To extend investment facilities to agricultural, other farming and off-farming
activities in the rural areas.
To finance self-employment and income generating activities of the rural people,
particularly the rural unemployed youths and the rural poor.
To alleviate rural poverty through integrated rural development approach.
To extend investment facilities for hand tube-wells and rural housing, keeping in
view the needs of pure drinking water and housing facilities of the rural dwellers.
To provide education and Medicare facilities to the poor rural people.
Security Requirements
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Generally, security will not be required against investment under the Scheme as entire
Scheme has been drawn taking into account the social welfare objective of the Bank for
upliftment of the socially down-trodden and economically backward and weaker section
of the population of the society. However, Group discipline should be strictly followed
and complied with so that only the right persons are selected and included as member of
the Group.
In case of investment for purpose of pond fishery, special ceiling in off-farm activities
and agricultural and irrigation implements, Branch should obtain after due verification, of
land documents of the clients and keep their documents as collateral by way of simple
deposit of title deeds through a memorandum of deposit executed by the client/owner.
Besides, in all cases, each member of the Group will give personal guarantee for the other
members of the same Group and the members will be jointly and severally liable and
responsible for payment of investment.
(Taka in millions)
Particulars 2007 2008 2009
Rural Development
Scheme
2885 3012 3703
Sector wise distribution of investment as on December 31, 2009 vis-à-vis corresponding
period of last year are given below:
Investment in Different Sector (%)
Sector 2008 2009
Agriculture 3.41% 3.84%
Industry 52.35% 51.07%
Trade 31.58% 33.33%
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Real Estate 4.59% 4.02%
Transport 1.70% 1.63%
RDS 1.58% 1.64%
Others 4.79% 4.47%
Total 100% 100%
Difference between Conventional & Islamic banking
Conventional Bank Islamic Bank
They have customized banking offerings to the
clients not in the Islamic point of view
It portrays huge customization of offerings to the
clients with Islamic rules & justifications
They provide the prefixed interest rate &
overcharged if needed
Interest rate charged according to the Islamic
Sarah
Depositors are not concerned with profit/loses Depositors act as the business partners with the
banks & shares the profit/loses
They earn more using the fund of depositors
charging more interest rate
Islamic bank invests the amounts of depositors
according to the promised interest rate not tries
to earn more
They can invest the surplus amount in various
financial events
Islamic bank never concerned with to invest the
surplus amount in the other financial events till
the customer doesn’t informed
They don’t have any system of payment the
Zakat
Islamic bank has the systematic Shariah process
to pay the Zakat each and every year
They charge more if any client fails to pay the
price after consuming goods & services
Islamic bank doesn’t charge on the delay
payment or any clients failure of paying price of
particular goods & services
They don’t have differentiations in the account Islamic bank two different criteria’s on the
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holders sharing profit/loses client’s account holding 1. Musharaka & 2.
Mudaraba
They don’t take the responsibilities for any loses
or bear any risks
Islamic bank bears the loses if any losses
incurred with only the Mudraba accounts
They are following general rules & regulations
with the contrast of ethics
Islamic bank controls its operations & activities
with moral judgment & the Islamic
jurisprudence
CHAPTER-5
FOREIGN EXCHANGE OPERATION OF
ISLAMI BANK BANGLADESH LIMITED
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5.1 Foreign Exchange:
Foreign Exchange Department is an important branch of IBBL, which deals with import,
export and foreign remittances. Foreign Exchange department is an international
department of the bank. It facilitates international trade through its various modes of
services. It bridges between importers and exporters. If the branch is an authorized
dealer in foreign exchange market, it can remit foreign exchange from local country to
foreign country. This department mainly deals in foreign currency that’s why it is called
foreign exchange department. Bank branch should be authorized dealer, with due
approval from Bangladesh Bank to run foreign exchange transactions. According to the
Bangladesh Law, the payment must be received within 120 days. This department is
playing an important role in enhancing export earnings, which aids economic growth and
in turn it helps for the economic development. On the other hand, it also helps to meet
those goods and service, which are more demandable and not adequate in our country.
Foreign Exchange Department is dividend in to 3 sections.
Import
Export
Remittance
Modes Used in Foreign Exchange Investments
Murabaha/ Bai Muazzal ---- Import/Export
Bai- Salam -------------------- Reshipment
Hire purchase----------------- For important Machinery under project Investment
5.2 Foreign Exchange Performance-2009:
Import Tk. 161230 million
Export Tk 106424 m
Remittance Tk 194716 m
Total Tk. 462,370 m
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5.3 The Documentary Letters of Credit:
Letter of Credit is a credit contract where the Opening/Issuing Bank is committed to
place an agreed amount of money at the beneficiary’s disposal under some agreed
conditions.
Forms of Documentary Credit
1. Revocable Credit:
A revocable credit is one where the issuing bank is at liberty to revoke that
is it can cancel the credit at any time. According to UCPDC (Uniform
Customs for Practice of Documentary Credit), a revocable credit may be
amended or cancelled by the issuing bank at any time and without prior
notice to the beneficiary before shipment of consignment against the L/C.
2. Irrevocable Credit:
An irrevocable L/C is one, which cannot be revoked or amended by the
bank with the concurrence of the interested party.
Some Important terms of Letter of Credit
Amendment of Credit: Sometimes the importer may require amendment to be made in
the L/C, but this amendment must be made with the consent of the exporter, otherwise
amendment will have no validity.
Adding Confirmation: Sometimes the exporter may not rely on the L/C issuing bank.
Exporter requires the L/C to be confirmed by another bank situated in his country. Then
on request of issuing bank, any bank in exporter’s country gives guarantee about the
payment. This is called Confirming Bank. By adding such confirmation, confirming
banks undertakes the liability to honor the bill of exchange of exporter.
Validity and Expiry of Credit: All L/C must mention the expiry date of L/C within
which the documents for payment/acceptance must be presented. This date must exceed
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the date of issuance of the bill of lading or other shipping documents, during which
presentation of documents for payment/acceptance must be made.
FOB (Free On Board): Under FOB basis, the exporter quotes the price covering all his
expenses until the goods duty packed are delivered “on board”, the carrying vessel named
and arranged by the buyer with the freight and the insurance being paid by the buyer. The
importer bears any costs incurred and all risks from the time the goods are placed on
board inclusive of those arising out of the ship’s failure on berth.
Cost and Freight (C & F): In this case the exporter quotes the FOB price plus insurance
cost. The responsibilities of carrying out all formalities for shipment of the goods
develop upon the seller.
CIF (Cost, Insurance and Freight): Under CIF, the exporter quotes C&F price plus the
insurance cost. The responsibility of carrying out all formalities for shipment of the
goods develops upon the seller.
FAS (Free alongside Ship): Under FAS, the seller quotes the price covering all his
charges until such time as gods are loaded on train at the specified railway station. The
buyer is responsible for all charges from the time he takes delivery of all goods from the
exporter’s yard.
EX-Factory: The seller quotes the price of the goods ex-factory on the date agrees. The
importer is responsible for all further necessary arrangements and charges.
Parties to Letter of Credit
1. Importer (Buyer)/Applicant
2. The Issuing Bank (Opening Bank)
3. The Advising Bank/Notifying Bank)
4. Exporter/Seller (Beneficiary)
5. Confirming Bank
6. Negotiating Bank
7. The Paying/Reimbursing/Accepting/Remitting Bank
Applicant: The person/body who requests the bank (opening bank) to issue letter of
credit. As per instruction and on behalf of the applicant, the bank opens L/C in line with
the terms and conditions of the seller contract between the buyer and the seller.
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Opening bank/Issuing Bank: The bank which open/issue letter of credit on behalf of the
applicant/ importer. Issuing bank’s obligation is to make payment against presentation of
documents drawn strictly as per terms of the L/C.
Advising/Notifying Bank: The bank through which the L/C is advised/forward to the
beneficiary (exporter). The responsibility of advising bank is to communicate the L.C to
the beneficiary after checking the authenticity of the credit. It acts as an agent of the
issuing bank without having any engagement on their part.
Beneficiary: Beneficiary of the L/C is the party in whose favor the letter of credit is
issued. Usually they are the seller or exporter.
Confirming Bank: The bank which under instruction in the letter of credit adds
confirmation of making payment in addition to the issuing bank. It is done at the request
the issuing bank having arrangement with them. This confirmation constitutes a definite
undertaking on the part of confirming bank in addition to that of issuing bank.
Negotiating Bank: The bank, which negotiates documents and pays the amount to the
beneficiary when presented complying credit terms. If the negotiations of documents are
not restricted to a particular bank in the L/C, normally negotiating bank is the banker of
the beneficiary.
Error: Reference source not found5.4 The plan of payment by means of
the letter of credit:The description of process:
The contract is concluded between the importer (buyer) and exporter
(seller);
Letter of credit (to open the letter of credit) according to conditions to the
contract and transfer the sum of a covering under the letter of credit;
The bank of the buyer (importer) opens the required letter of credit and the
Bank-Correspondent asks to notify the supplier (exporter) on opening of
the letter of credit;
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Straight Bank (the Bank-correspondent of the Bank-Emitter) informs the
supplier (exporter) on opening of the letter of credit;
The supplier (exporter) organizes transportation of the goods by means of
the conclusion of the agreement with the transport or Insurance Company
and receives the transport invoice or insurance policy.
The supplier (exporter) gives, according to the contract, the following documents:
Air or Railway invoice Insurance policy, Packing sheet, Certificate of quality And other
documents straitening to bank for payment under the documents. It is supposed that all
documents correspond to conditions of the letter of credit.
In this case we proceed from the assumption, that straitening and executing bank is the
same.
The Executing Bank checks all documents on conformity to the letter of credit and, if not
it is found out of any divergences, the Bank pays the requirements of the Exporter.
If the divergences are found out, executing the bank can work with one of the following:
To pay the documents after reception from the Exporter of the letter of guarantee,
To pay the documents after reception of the consent with divergences from the
Bank-Emitter.
Executing the Bank sends the documents to the Bank-Emitter according to the
conditions, stipulated by the letter of credit;
Executing the Bank sends the requirement about a covering (with the invoice of
the addressee under the letter of credit) to Confirming Bank;
The Bank-Emitter notifies the Buyer (Importer) on arrival of the documents;
The Buyer (Importer) receives from the Bank-Emitter the documents;
The Buyer (Importer) gives the invoice of the Transport Company for reception of
the goods;
After reception of the goods from the transport.
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Figure: Summary of the Plan of Payments
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5.5 Modes of sales of Goods:
1. Cash in advance: Risk is minimum The Performa invoice is used
2. Open Account: Goods are sent first and payment is made afterwards. There are
no intermediaries. Performa invoice is used here as well.
3. Documentary Collection: Same as an open account but the use of bank as an
intermediary. Here the risk is zero. Here the bank acts like an agent.
4. Documentary Credit: L/C
Back- to- Back L/C
Back -to -back L/C means one credit backs another. It is new credit in favor of another
beneficiary. Sometimes beneficiary seller of a credit himself is unable to supply goods
specified in the L/C and required to purchase from another supplier by opening second
credit. Besides, the formalities and requirements for (L/C opening) the following
formalities and documents are also required for opening back-to-back L/C.
Master L/C
Valid bonded ware house license
Quota allocation for quota items
ERC in addition to IRC
Indemnity/Undertaking
NO objection from previous banker
Factory inspection certificate
BGMEA Membership
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CHAPTER-6NETWORKING, MARKET SHARES
AND PROSPECTS
OF
ISLAMI BANK BANGLADESH LIMITED
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Branch Network
IBBL has continued expanding its branch network and during the year 10 new branches
and 10 new SME Service Centres were added to make the branch network to 196
branches and 10 SME Service Centres at year end 2008. In order to facilitate the business
and administrative functions, the bank divided the branch network in 10 Zones. Among
196 branches, 18 branches included in Dhaka Central Zone, 19 branches in Dhaka South
Zone, 19 branches in Dhaka North Zone, 26 branches in Chittagong Zone, 20 branches in
Khulna Zone, 19 branches in Bogra Zone, 17 branches in Sylhet Zone, 23 branches in
Comilla Zone, 15 branches in Barishal Zone and 16 branches in Rajshahi Zone and 04
Corporate Branches. Relatively large network of IBBL is supplemented by 29 shared
ATMs, 10 SME Service Centres and 1 Capital Market Service Centre (brokerage house)
and alternative delivery channels such as SMS banking and internet banking.
Market Share
The market share in terms of deposit and investment of IBBL improved over the previous
year and the position has been found very well compared to its peer. The banking industry
of Bangladesh had deposit of Tk. 2,343.15 billion and Tk. 2,230.36 billion and
Investments were Tk. 2,095.31 billion and Tk. 1,713.51 billion during 2008 and 2007
respectively shared by 48 banks. The total deposit of IBBL at YE2008 was Tk. 200.34
billion which constitutes 8.55% (7.46%; FY2007) of total deposit of the banking sector.
The growth rate of deposit of IBBL was 20.45% against industry growth of 5.05%. On
the other hand the total investment of the bank stood at Tk. 180.05 billion at YE2008
which was 8.59% (8.46%; YE2007) of the industry Investments. The investment growth
rate of IBBL was 24.24% whereas industry growth was 22.28%.
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PROSPECTS
The financial sector of Bangladesh is now considered to be the most regulated sector
compared to other sectors. As many as 48 banks are now in operation in a small economy
like Bangladesh. Consequently, the financial institutions have been facing tough
competition in grabbing market share. The economy of Bangladesh had gone through a
crucial time for last couple of years. It had to face several downside risks including
political disruption, infrastructure constraints, power shortage, natural calamities etc.
There is high inflation, sluggishness in the capital Market and sudden oil price and
commodity price fall in the world market. Above all the world felt the pinch of debacle in
the financial institutions in the western world causing financial meltdown leading to
recession in the western economy. Especially in USA all recovery financial package,
advanced by Government did not bring the desired impetus in the banking and financial
system. The meltdown has affected all western countries including some Asian countries
too. Due to timely withdrawal of investment by Bangladesh Bank from the western
world, country’s interest has been safe guarded. Experts suggest that by and large all
countries might feel sooner or later the effect of meltdown. However in spite of world
recession which started at the last quarter of 2008, export earning of Bangladesh from
ready made garments showed good growth due to competitive low price. Inward
remittance has also showed substantial growth to reach 8.00 billion US dollar during
2008. Due to fall in world market commodity price, the import of the country showed
comparatively less costly demanding lesser funds. During 2008, in order to ease the
inflationary pressure and also to enhance economic activities the Bangladesh Bank
declared expansionary monetary policy. However banks were encouraged to decrease
spread between deposits and credit by end of May, 2009 but some of the banks were
hesitant with the fear that it will affect the profitability adversely. Banks have been
encouraged to diversify investment portfolio for productive sector and enhance credit to
SMEs and agricultural sectors.
Despite the above changes, the macro-economy outlook for the year 2008 remained
favorable due to robust performance in industry sector lifted by export oriented
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manufacturing, enhanced remittances from abroad and overall growth in the industrial
and service sectors. Industrial production continues to register strong rise showing steady
growth despite the earlier concerns about the adverse effect on the industrial sector on
account of the ending of MFA quotas. External sectors developments are encouraging.
Export during 2009 is expected to rise due to duty free entry of RMG in India. The
balance of payment is in good position. Remittance and foreign investments are also
showing rising trends till to day. Under the above back drop it is expected that the banks
will have good investment climate and growth in the coming days under post election
period with new plan and program by the Government related to all sectors of the
economy. The Central Bank is also adopting various measures to encourage credit
activities by banks along with the various salvage packages being considered by Ministry
of Finance to maintain economic growth of the country under the economic meltdown
threat and risk of the western world. Being an Islamic Shariah based first generation
private commercial bank of twenty six years operation, Islami Bank Bangladesh Limited
has been improving its banking product and services to find room in the deposit and
investment market through 196 branches and 10 SME Service Centres. However, the
bank management has enough opportunity to enhance updated banking knowledge among
officials, develop quality and capacity of service, updating ICT infrastructure, arranging
need base research & development etc. to comply with modern banking requirements-
like real time online banking service; implementation of Basel-II for risks from
investment, operation and market; acceleration of business growth etc. Further, the
management is in essence to address the existing shortcomings and ensure good corporate
management, good asset quality, satisfactory capital base, good profitability and demand
driven liquidity etc.
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Findings
IBBL is the largest first generation Islamic commercial Bank in our country. Over the last
27 years IBBL has been making strong customer “confidence” which has ultimately
brought satisfactory business growth, good performance trend & largest network of
branches. Today best Baking depends on comprehensive risk management, modern
Banking knowledge & swift customer services through real time on line Banking. In the
upcoming days, for maintaining the accelerated pace of business growth & operating
performance, IBBL will have to invest money for the development of IT infrastructure,
HR quality & research. However, the present executive President, Abdur Raquib has been
utmost trying to make the Bank best private Islamic commercial Bank in Bangladesh in
terms of efficient performance in capital adequacy, good asset quality, sound
management, good profitability & strong liquidities developing the best efforts with
strong support from sponsors. The success of the Bank will depend on proper
implementation of core risk management, achieving good profitability & at the same time
maintaining good asset quality.
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Recommendation
1. IBBL can diffuse its scope of investment through focusing Shariah concept
regarding investments among the Bank officers; employer and the Clients by
strong training, workshops and Clients get - together.
2. The authority of IBBL should exert pressure on Government bodies to run proper
and sufficient application of Islamic banking laws in Bangladesh.
3. Inclusion of more subjects based on the Quran and Sunnah in the Training courses
of the Islami Bank Training & Research Academy in order to develop human
resources having morally.
4. This Bank should arrange a wide varieties of regular programs like "ISLAMIC
JALSA" "OAAZ MAHFIL" "SEMINAR" "MOSQUE -BASED DISCUSSION"
etc. about Islamic Banking Function countrywide to remove the negative
impression about IBBL.
5. Arrangement of monthly /quarterly training courses /workshops for the clients
selected by the Branches in order to promote Investment clients of the desired
level.
6. IBBL should appoint a sufficient number of women employees to deal women
entrepreneurs and professionals and understand their needs and thus create
demand for investment.
7. To fulfil the vision of "mass banking" this Bank should grants investment
portfolio to new entrepreneurs /new businessmen new companies etc.
8. IBBL should utilize "Internship Program" as one kind of promotion policy to
encourage its present and potential investment clients. Because, young generation
is the vital post of our economy. To do so this Bank should provides facilities to
the internees through proper placement and practical operations as well as job
certainty to those who bring introduce themselves the best performers in doing
their particulars.
9. To gain success in the programs like "Poverty Alleviation and "Self Reliant"
especially in rural areas, this bank should provides investment facilities on the
basis of individual.
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10. The Bank should disburse total invested money at once to the clients to achieve
full benefits of invested money.
11. IBBL should give more emphasize on their marketing effort and try to increase
their sales force.
12. IBBL should appoint a Customer Relation Officer at branch level.
13. IBBL should make their credit approval and monitoring system more customers
friendly.
14. IBBL should try to reduce their loan issuing and disbursement timing.
15. IBBL should increase their profit rate on different deposit scheme.
16. IBBL should try to attend different type of target customer.
17. IBBL should introduce long-term credit scheme like different types of 5 years or
ten years credit scheme.
18. IBBL should Introduce Islami Credit Cards as soon as possible.
19. Maximum clients do not know about IBBL’s Loan schemes. They should carry
out more promotional activities to make clients aware about their offers.
20. It was observed that, IBBL is absent in TV, Print Media, Bill Boards, and
Sponsorships etc. Bank should advertise about itself so that it can attract more
clients. That will increase the business volume of the bank.
21. To avoid bad debts IBBL should give more emphasize on Lending Risk Analysis
(LRA) and try to conduct sensitivity analysis.
22. IBBL should give highest attention on recovery of Bad Debts. This concerns the
Image of The Bank, to the clients
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Conclusion
According to the general ideas of people the IBBL is a bank who has no right to do
banking in the name of Islam because they are charging more not according to the Islamic
rules. Yes that is the fact but not in everywhere. IBBL today is the leader among the all
best commercial banks in Bangladesh. They are doing according to the proper banking
system should have utilized & they are following the Islamic Shariah. In different aspects
& different location IBBL has created a good image & also somewhere bad images. They
are ahead among the remote areas people who love the Islam & the rules of Islam. Today
IBBL whatever doing in the banking systems they are completely innovative & very
much carrying to the clients. IBBL has set a standard in the banking environment with the
appropriate resolution of Islamic point of view & the business dilemma. They are
providing great service in banking comparing with conventional banking service. They
are handling with accounts having no extra benefits rather than what should be the real
benefits. According to their idea & business concerns they have created a bridge
connection in between them & the clients so that the clients can keep faith on the Islamic
banking. In the rural arena they are providing great opportunities for the SME’s to cheer
up & grow up with new & massive possibilities in business. They are helping to create
the financial leader among the society so that the great mistrusts go out & build the trust
of real. They are establishing the trust in between peoples both in the lower level & the
high raised level’s people by giving the same solutions of financial aspects with more
realistic & justified than the conventional banking system in Bangladesh.
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